October 26, 2016 / 3:36 PM / a year ago

Egyptian developer Palm Hills expects deal on mega-project by year-end

CAIRO (Reuters) - Egyptian property company Palm Hills expects to sign a revenue-sharing deal with the government this year to develop what would be the country’s second-largest real estate project, one of its co-chief executives said.

The country’s property sector has boomed in recent years as the population grew to more than 91 million, with demand driven higher by investors seeking to hedge against a fast-depreciating currency, and Palm Hills proposes to develop a huge site in the western suburbs of Cairo.

“We are in negotiations now with the government ... to try to finalize the agreement,” Tarek Abdel Rahman said at the Reuters Middle East Investment Summit.

“We are building a mini city.”

Abdel Rahman said Palm Hills aims to have the contract signed by the end of the year and to launch the project by the end of 2017.

The site covers 25 million square meters -- equivalent in size to about a third of Dubai -- and will include residential and commercial facilities.

Most of Egypt’s property demand comes from lower-income families seeking social housing or lower-end accommodation, but Palm Hills and other listed developers cater mainly to more affluent buyers.

Abdel Rahman puts demand from the middle classes and above at between 120,000 and 150,000 units but says supply is somewhere between 17,000 and 20,000.

With such a mismatch between supply and demand, property prices have climbed by up to 40 percent a year and Palm Hills expects the upward trend to continue, albeit at a slower pace as more properties come available.

Tarek Abdel Rahman, chief executive officer of Palm Hills Developments, speaks during an interview with Reuters at his office in Cairo, Egypt, October 25, 2016. REUTERS/Mohamed Abd El Ghany


“There is still room for prices to go a bit higher but at a certain point it will plateau ... Instead of seeing 30 percent year over year, you may start seeing 20 percent,” he said.

The company plans to increase prices by 10 percent for units in the second phase of its Capital Gardens project in New Cairo, east of the capital. The first phase of 700 units sold out within three months and the second phase of 600 units will be launched in weeks.

Palm Hills will also launch a new mixed-use development with nearly 5,000 units of residential and office space in November through a revenue-sharing agreement with the government.

The developer expects to exceed its original sales revenue target by year-end.

“Our target was 6.5 billion pounds ($732 million), then we increased it to 7 billion pounds because the market is doing really well,” Abdel Rahman said.

Despite significant rises in sales revenue, Palm Hills’ net profit declined year on year by about 40 percent and 80 percent in the first and second quarters respectively.

The company said the declines were because of a change in accounting standard change, but it expects a return to profit growth in the third quarter.

“The numbers will be better in terms of top line, bottom line and margins,” said Mamdouh Abd El Wahab, the company’s investor relations and investments director.

“It will be better than the previous quarters and better than the same quarter last year.”

Editing by Lin Noueihed and David Goodman

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